Siem Reap airport’s future up in the air

The government is ready to move forward with negotiations on compensation for stripping a French company of its concession to operate Siem Reap’s international airport, while plans for the construction of a new Chinese-operated airport to serve the provincial capital are close to being finalised, a state official said yesterday.

In October, the Cambodian government reached an agreement with China’s state-run Yunnan Investment Holdings Ltd (YIHL) to build a new $880 million airport to serve Siem Reap. The agreement gave YIHL and its construction and airport management subsidiaries an exclusive 55-year build, operate, transfer (BOT) concession on the new airport, replacing the current exclusive agreement with Cambodia Airports, a company majority-owned by France’s Vinci Group, which was set to expire in 2040.

The Postreported in December that a government decree signed by Prime Minister Hun Sen called for the formation of an eight-person committee to lead compensation talks with Cambodia Airports, while YIHL would be responsible for distributing the settlement amount once its new airport begins operations.

Yim Nola, the senior minister of the Cambodian government who heads the committee, said the government informed Cambodia Airports late last year that it was prepared to discuss compensation and was awaiting its response.

“Until now we still have not heard anything from [Cambodia Airports,]” he said, suggesting that “they might need more time to study their proposal for the compensation amount”.

He added that once the company submits its proposal, the government would require time to evaluate the costs.

“A lot of time is needed for discussion,” he said.

Meanwhile, the State Secretariat of Civil Aviation (SSCA) set up a team earlier this week to provide technical and regulatory oversight for the construction of YIHL’s greenfield airport, according to SSCA spokesman Sin Chanserey Vutha. He said the team’s purpose was to help with the initial evaluation for the construction as well as to assist with any other technical challenges that might arise.

“We needed to set up the technical team to work with the Chinese investors as the SSCA is the local regulator and has the specific technical experience and expertise for regulation and compliance,” he said.

Vutha said YIHL has submitted documents for the airport to the Council for Development of Cambodia (CDC), while the group also established a local subsidiary, registered with the Ministry of Commerce under the name Angkor International Airport Investment Cambodia.

While the agreement for the new airport concession is definitive, Vutha said it was yet unclear what future role the existing airport facility would have, floating the possibility that it could be remain in use for domestic flights.

“In my view, the current airport could be used for domestic flights, but if that is not the case, it will have to shut down its operation,” he said.

Cambodia Airports operates international airports in Phnom Penh, Siem Reap and Sihanoukville under a 45-year concession dating back to 1995. The company recently sunk $100 million into upgrading its terminals in Phnom Penh and Siem Reap.

Darwin Hem, principal partner at BNG Legal law firm, said that while Cambodia Airports’ concession contract has never been made public, compensation negotiations would likely follow the legal framework set forth by the 2007 Law on Concessions.

He noted the Law on Concessions “entitles the concessionaire to compensation in accordance with the terms stipulated in the concession contract, including the fair value of works performed, costs incurred or profit losses sustained by the concessionaire”.

He said even in the absence of a contractual clause on the reduction of the length of the concession contract Cambodia Airports would be entitled to compensation.

The government’s decision to prematurely end Cambodia Airport’s concession could have broader repercussions with international investors, especially if the negotiations are mismanaged or if the company suffers financial losses, Hem noted.

“In the transitional period of the negotiation arrangement for the concession contract, there may be a slight impact on the investors who want to invest in Cambodia, especially those who wish to sign concession contracts for land and infrastructure projects in the country,” he said.

“However, the impact may become stronger if the concessionaire incurs great losses following the negotiation.”

When reached yesterday, Cambodia Airports communication director Khek Norinda said the company did not want to comment on the ongoing negotiations, but expressed optimism for the result.

He said the issue of Siem Reap airport was of mutual concern for the government and Cambodia Airports, and “we are confident that the dialogue on its future development will deliver a constructive outcome”.

Angkor International Airport Investment Cambodia could not be reached for comment yesterday.

Comments

There was an exclusive agreement with a French company and the government ignored that and made an agreement with a Chinese company. This is how Cambodia's word will be remembered. China is much better at paying bribes to those in charge but they are far less reasonable to those that work for them or use their services. This is a very bad move.